Gold prices rallied 3 percent on Friday and were on track to end June with their first monthly rise in five as a deal to shore up banks and cut borrowing costs at a European Union summit sparked a surge in assets seen as higher risk.
Euro zone leaders agreed to take emergency action to bring down Italy's and Spain's spiraling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.
The news sparked a sharp rally in European shares, a 1.9 percent jump in the euro versus the dollar, and a near $4-a-barrel gain in oil prices. Spanish and Italian government bond yields fell, and safe-haven German Bunds slid.
The news has been positive for the euro and positive for confidence in general, which means that equities and commodities, including gold for the time being, have all received a shot in the arm, Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.
Spot gold was up 3 percent at $1,596.76 an ounce at 9.03 a.m. EDT, while U.S. gold futures for August delivery were up $47.40 an ounce at $1,597.70.
Still, the metal stayed on track for its biggest quarterly drop since the three months to September 2008, down 4.3 percent since end March. In that period, the dollar rose and hopes faded that the Federal Reserve would unveil further monetary easing.
After a widely celebrated 11-year bull run, which took gold prices to a record $1,920.30 an ounce last September, it is now little better than flat on the year and has averaged just over $1,650 an ounce in the first half.
After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher, Saxo Bank vice president Ole Hansen said. The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building.
They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends.
The event that could trigger the spark that puts some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table, which could be triggered by a move below $1,500.
INDIAN BUYING PICKS UP
Physical gold buying in major consumer India picked up a little on Friday. Weakness in Indian demand has undermined spot prices this year, with Indian gold prices near record highs due to rupee weakness.
Traders in India are waiting for monsoon rains to pick up, which is vital to farm productivity and profits. Rural areas account for about 60 percent of gold imports.
Quarterly sales of gold American Eagle coins by the U.S. Mint also fell to their lowest in four years at 127,500 ounces, down more than 39 percent from the previous quarter and by more than half year on year.
Silver was up 5.1 percent at $27.67 an ounce.
That helped pull the gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, back from its highs of the year to 58.5.
Spot platinum was up 2.8 percent at $1,422.25 an ounce, while spot palladium was up 2.6 percent at $575.69 an ounce. Both have fallen to their lowest this year in recent days, at $1,378 and $556 respectively.
Overall, the market's behavior was not all that different from what we've seen all week: price action comes in sweeps, mostly on Comex, and stops get triggered along the way, amplifying the move, UBS said in a note. Today, it's no great surprise that silver and PGMs are leading the move higher, with both easily outpacing the euro move.